International Finance and Global Governance

The Research Area “International Finance and Global Governance” was newly created in April of 2017. Our research agenda has one common theme: to explore the risks and the opportunities of financial globalization, including political risks. Another common theme is that we work empirically and take a long-term perspective, drawing on decades or even centuries of data. The results of our projects show that history offers many lessons to address current global problems.

Much of our research focuses on classic international finance topics such as cross-border capital flows, sovereign debt and default, current account imbalances, financial stability, and economic crises. The distinguishing feature is that we address these topics with a wealth of new data, which we collect ourselves, in order to gain new evidence and to inform theory and policy debates.

Our second main focus is on global governance and political economy, in particular on the international financial architecture as well as on the role of political shocks on the global economy. We are convinced that the phenomena of globalization and international finance have to be studied in a broader context that takes the political and social realm seriously. Indeed, populism and the political backlash against open markets is now probably the main challenge to the future of globalization, in general, and for the fate of international financial cooperation, in particular.

More specifically, our work programme includes the following set of questions:

International finance and macroeconomics

How do international capital flows affect financial stability?

Is there a global (boom-bust) cycle in capital flows and how does it affect financial stability?

How risky are sovereign bonds for private investors and the financial system?

How can debt crises be prevented and/or resolved more effectively?

Current account imbalances: what are the returns of German assets abroad?

Global governance and political economy

Should international financial institutions, such as the IMF or the ESM, be reformed and, if so, how?

Country bailouts: when and why do countries lend to each other?

Do we need a bankruptcy regime for sovereigns in the Eurozone and beyond?

What are the political and social costs of financial crises?

What are the economic consequences of populism and political polarization?

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